Intel predicts its data-center group, which provides the chips that are at the heart of almost all server computers, will post a revenue decline in 2019, its first drop in a decade.
The company also on Wednesday also cut its overall annual sales and earnings targets and said this quarter will be worse than analysts estimated.
Chief Executive Officer Bob Swan said Intel’s customers, particularly those in China, are merely tapping the brakes after ordering chips at a frantic pace last year. However, analysts believe that Intel is
losing share in the country, as the company urgently needs to solve recent manufacturing problems to head off possible gains by rival Advanced Micro Devices Inc.
Intel’s overall sales in the first quarter were little changed at $16.1 billion. Net income slipped to $3.97 billion. In last year’s first quarter, Intel posted earnings of $4.45 billion, or 93 cents. Gross margin, or the percentage of sales remaining after deducting the cost of production, was 56.6 percent in the quarter.
Revenue in the current period will be about $15.6 billion and net income will be 83 cents a share, the Santa Clara, California-based company said in a statement. Sales for the year will be $69 billion, Intel said.
Intel's data-center unit declined 6.3 percent from a year earlier in the recent period, compared with growth of 9 percent in the fourth quarter. In January, Intel executives predicted that orders would pick up once customers worked through stockpiles of unused chips. Intel’s Xeon processors account for more than 95 percent of the market for chips that run servers, the machines that provide the backbone of the internet and corporate networks.
Cloud-computing companies such as Amazon.com Inc., which reported strong earnings Thursday, have ordered equipment to meet the demand for data processing. Such spending has been one of the key drivers of growth in the chip industry over the past few years. Intel joined other chipmakers, such as Xilinx Inc., in signaling that massive spending on infrastructure isn’t going to come raging back this year.
In memory, the company’s investments in a new type of semiconductor weren’t able to provide a cushion from a decline in the price of industry-standard parts it makes. Operating losses in that business widened to $297 million in the quarter, compared with a loss of $81 million in the same period a year earlier. Swan said the unit will have to do a better job of providing a return on investments, adding that he would look at options including partnerships with other companies.
Intel also announced earlier this month that it will wind down an effort to stake a claim in chips for the mobile-phone industry. After Intel’s one significant customer, Apple, said it will return to using Qualcomm for its iPhones, Intel said it will stop developing chips for 5G smartphones and will complete an assessment of the opportunities for modems in personal computers and other devices.
Though the server market is more profitable, Intel still gets the majority of its revenue from the PC market, and its processors are the main component in most of the world’s laptops and desktops. That business posted first-quarter sales of $8.59 billion, up 4.5 percent from a year earlier. Shortages of some parts, caused by manufacturing issues at Intel’s plants, have limited shipments of PCs in recent quarters. Swan said those shortages will continue through the first half of the year.
The company has been struggling to migrate its chip manufacturing process to more advanced nodes. That’s left Intel and the computer industry short of manufacturing capacity. In response, the company prioritized making chips that it can charge more for -- server and high-end desktop processors -- causing a scarcity of supply, particularly for cheaper laptops.
Intel said it first high-volume 10nm processor, code-named Ice Lake, remains on track to be in volume systems on retail shelves for the 2019 holiday selling season.
"Results for the first quarter were slightly higher than our January expectations. We shipped a strong mix of high-performance products and continued spending discipline while ramping 10nm and managing a challenging NAND pricing environment. Looking ahead, we're taking a more cautious view of the year, although we expect market conditions to improve in the second half," said Bob Swan, Intel CEO. "Our team is focused on expanding our market opportunity, accelerating our innovation and improving execution while evolving our culture. We aim to capitalize on key technology inflections that set us up to play a larger role in our customers’ success, while improving returns for our owners."